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According to recent projections by the International Monetary Fund (IMF), the United States continues to be the largest economy on the planet, accounting for 26.3% of the world’s Gross Domestic Product (GDP), the highest proportion in almost 20 years. According to the same projections, Europe’s share has fallen by 1.4% since 2018 and Japan’s by 2.1%. That of the USA, in turn, grew 2.3 percentage points. China’s share also increased over the same period, but reduced its relative size in relation to the United States from 67% to 64%.

The period under analysis coincides with the Covid-19 pandemic, the trade war against China, started by Trump in 2018 and continued by Biden, and the resumption of industrial policy in the United States, with billion-dollar subsidies for the semiconductor industry , for the so-called green economy and renewal of the country’s infrastructure and, last but not least, the war in Ukraine. It also coincides with an unprecedented increase in the United States’ public deficit. According to the Wall Street Journal (2/16), “Federal debt held by the public is expected to rise from a record $26 billion in 2023 to $48 billion in 2034.”

Everything suggests that such factors are in some way related to the maintenance of the global primacy of the United States. Let’s see.

During the three years of the pandemic, the United States injected several trillion dollars into its economy. In 2020, at the height of the pandemic, Congress approved spending of more than US$3 trillion on measures that included checks sent to the population and billions of dollars to help small businesses and businesses. When Biden assumed the presidency in 2021, he announced the Build Back Better Plan with the aim of making the largest national public investments in social, infrastructural and environmental programs since the 1930s worth US$3.5 trillion, later reduced by the United States Congress to $2.2 trillion.

Subsequently, in 2022, the Biden administration managed to pass the Inflation Reduction Act (IRA) that authorizes $891 billion in total spending – including $783 billion on energy and climate change and three years of Affordable Care Act subsidies. Of this total, the green subsidies package alone raised US$369 billion, as reported by The Economist magazine (24/4).

Also in 2022, the United States Congress passed the CHIPS and Science ACT, which authorized approximately $280 billion in new funding to boost domestic research and semiconductor manufacturing in the United States, for which allocates US$52.7 billion. The law includes $39 billion in subsidies for chip manufacturing on U.S. soil, along with 25% investment tax credits for equipment manufacturing costs, and $13 billion for semiconductor research and workforce training. with the dual goals of strengthening the resilience of the American supply chain and countering China. It also invests $174 billion in the overall public sector research ecosystem in science and technology, advancing human spaceflight, quantum computing, materials science, biotechnology, experimental physics, research security, social and ethical considerations, workforce efforts of development and diversity, equity and inclusion at NASA, NSF, DOE, EDA and NIST.

According to the Financial Times (4/25), “With recent multibillion-dollar donations to Intel, TSMC, Samsung and Micron, the US government has already spent more than half of its $38 billion in Chip Act incentives. In doing so, it generated an unexpected investment boom. Chip companies and supply chain partners have announced investments totaling $327 billion over the next 10 years, according to calculations by the Semiconductor Industry Association. US statistics show a staggering 15-fold increase in the construction of computing and electronic device production facilities.”

According to the Hong Kong-based South China Morning Post on April 14, the United States’ most recent achievement was to convince the world’s largest semiconductor manufacturer, Taiwan Semiconductor Manufacturing Co (TSMC), to begin production of its most advanced chips. in the United States. TSMC’s new commitment means it intends to begin producing its latest 2-nanometer chips, and more advanced ones in the future, at a new factory being set up in Phoenix, Arizona. For this, it received a donation of US$6.6 billion from the American government under the umbrella of the Chips Law. The new factory goes significantly beyond the current factory, also located in Arizona, which will produce less advanced but more commercial chips. A few days later, it was the turn of the South Korean Samsung to receive US$6.4 billion to build factories in Texas, as reported by the Economist magazine (35/4).

According to the GSI website, “Taiwan produces 92% of the world’s most sophisticated chips at 3-5 nanometers and 80% at 7 nanometers and less. Currently, the US has a 10% global share of semiconductor production, but dominates the value chain at 39% (increasing to 53% together with Japan, Europe, South Korea and Taiwan). While the US leads the upstream integrated circuit design process, the Netherlands and Japan have strong positions in intermediate integrated circuit manufacturing, as well as packaging and testing.” It is this balance that the United States is trying to change in its favor, even though producing these more advanced chips on American territory will cost twice as much as it costs in Taiwan, due to the cost of labor and other cost factors.

For developing countries, this difference in production costs alone would justify the “recommendation” that it would be more sensible to produce commodities and import chips, made more efficiently elsewhere. It’s the famous law of comparative advantages, universally valid, except for the United States…

Another factor that certainly must have contributed to the expansion of the American economy during the period was the cancellation of student debt, which led many young American couples to postpone their wedding plans due to the impossibility of starting a new life and purchasing or renting a property. As reported by the newspaper Valor (25/4), “As of February, Biden has canceled US$138 billion in student debt — and has just announced plans to cancel a few billion more — which directly increases the purchasing power of debtors.”

The war in Ukraine, in turn, gave a huge boost to the North American arms industry. Since the beginning of the conflict, the United States has allocated around US$75 billion in aid to Ukraine. It turns out that a large part of this money does not leave the United States because it involves purchasing weapons and ammunition from American companies themselves to be sent directly to Ukraine or to replenish stocks of weapons and ammunition sent by the United States and its allies to the Ukrainians. Most of the weapons sent by NATO to Ukraine, by the way, are old and are being replaced with new weapons with state-of-the-art technologies. Of the new aid package for Ukraine, Israel and Taiwan, worth US$ 95 billion approved this April by the United States Congress, US$ 57 billion will return to US producers in the form of more arms purchases, reports Valor Econômico newspaper in 25/4.

An indirect result of the war was the improvement in the terms of trade for American exports, that is, export products became more expensive than imports, namely natural gas that began to supply Europe due to the cut in the supply of Russian gas. . If higher energy prices led Germany into recession, the opposite occurred with the United States.

Finally, why is the US public deficit contributing to the expansion of the US economy? For the simple reason that a large part of the expenses listed above are not being financed with taxes, but by the issuance of public debt by the United States Treasury. Donald Trump, in fact, cut taxes on the richest and if re-elected he will certainly do it again, issuing debt to cover the increase in spending. According to the Wall Street Journal (2/16), “The pandemic has driven rates to zero and triggered a surge in borrowing that has added to years of rising federal debt. The Treasury Department ramped up bond issuance to a record $23 trillion last year.”

But doesn’t the increase in the public deficit cause inflation, as advocates of fiscal austerity claim? That wasn’t what happened in the United States. The annual inflation rate rose from 3.2% in 2011 to 8.3% in 2022, largely due to the strangulation and disruption of global supply chains caused by the pandemic, but as soon as supply was normalizing, it began to fall . Last March it was already at 3.12% with a rebound to 3.48% in April. According to the Financial Times (26/2), “U.S. inflation rose to 2.7% in the year to March, another sign that price pressures remain stubbornly high, complicating the Federal Reserve’s plan to cut interest rates this year. Friday’s data on personal consumption expenditures, the Fed’s preferred gauge for measuring inflation, beat economists’ expectations for a slight increase to 2.6%, up from 2.5% in February.”

There is nothing to indicate, whether Biden or Trump is the next president of the United States, that anything remotely resembling fiscal austerity will cross the minds of American authorities. The important thing for them is to keep the United States as the largest economy in the world.


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